B2B Payments 2015: The Financial Impact of ePayments over the Next Two Years

Posted by Andrew Bartolini & Matthew Delman on April 6th, 2016
Stored in Articles, Process, Procure-to-Pay

[Editor’s note: We will soon be taking down the “State of B2B Payments 2015” market report, so do not miss your opportunity to get our latest research B2B payments. Get the report before it is too late!]

Each year, Ardent Partners conducts a series of market research studies focused on the accounts payable (“AP”) and P2P markets. Our most recent of these looked at the state of business-to-business (“B2B”) payments and captured the key findings in a report called “The State of B2B Payments 2015: Emerging Business Value.” The report captures the perspectives, experience, and performance of more than 200 AP and finance leaders, and also examines the key trends impacting the market; as with all of our state of the market reports, it also includes a series of recommendations. The full report is available for download by clicking here (registration required).

The accounts payable team can have a significant financial impact on the wider enterprise, something which is often not well-understood outside of the finance department. The reason for this is that AP controls supplier payments, which are frequently the largest single non-payroll source of cash outflows in the organization. Given that AP controls when suppliers get paid—for every transaction that generates an invoice—the AP team occupies a uniquely central role in the financial life of the enterprise. As a result, there are three major financial impacts that switching to electronic payments can have over the course of two years: increased early payment discount capture, a key role in supply chain finance programs, and AP’s increase involvement in cash management.

Financial Impact #1: Increased Early Payment Discount Capture

Fifty-three percent (53%) of enterprises expect that AP will become critical to capturing more early payment discounts over the next 24 months. This is to be expected, because early payment discount capture is one of the more direct ways that AP can have an impact on the enterprise’s bottom line. As speed and visibility increase on the process side, typically through more automation, AP will have the opportunity to communicate which early payment discounts can be captured in accordance with the enterprise’s strategy. This will, ideally, lead to capturing more early payment discounts, which can directly increase the amount of money the enterprise has its accounts.

Financial Impact #2: A Key Role in Supply Chain Finance

Supply chain finance (“SCF”) offers a unique benefit to enterprises of all different sizes. Say there is a strategic supplier that the enterprise wants to pay early, but at the same time does not want to negatively impact its days payable outstanding (“DPO”). SCF programs exist for this very situation. In SCF, a third-party lender pays the supplier immediately once the invoice is approved, and then takes on the obligation to be paid for the invoice. This creates something of a win-win for buyers and suppliers; buyers are able to pay the invoice on a much longer cycle, and suppliers get paid early. Fifty-one percent (51%) of enterprises expect AP will become key in managing these initiatives in the next 24 months, which comes as little surprise given SCF’s ability to offer access to more reliable cash flows. Accounts payable, working with treasury, has the data visibility—as well as the financial acumen—necessary to make these kinds of financing decisions, which can lead to an improved DPO while also bettering the relationship with key suppliers.

Financial Impact #3: An Increased Cash Management Involvement

Because of AP’s position as a cash distribution function in the enterprise, an involvement in cash management (48% expect this over the next two years) is a logical evolution of the function’s duties. AP’s increased involvement in cash management can also come about because of the greater visibility into upcoming supplier payments that ePayment solutions tend to provide. With this data, AP can become an integral part of Treasury’s working capital strategies as well as its financial forecasts—a key point of strategic contribution for the AP team.

Final Thoughts

What is immediately apparent from the changes AP and finance leaders expect over the next two years, across both dimensions, is that the AP function looks to undergo a stark evolution in terms of its financial impact in the enterprise. Those enterprises willing to travel down this pathway to its logical conclusion could end up having an AP team that, by and large, is a strategically vital component of business operations—not simply a black hole where invoices go for approval. And that is good for everyone.

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